Debate HN: Is Bitcoin a currency or a commodity? | Hacker News Reader

Debate HN: Is Bitcoin a currency or a commodity?

36 points_b8r051 comments

I read the recent forbes[1] article on Bitcoin and it made me wonder how someone could miss the point of Bitcoin so much. This lead to a particularly interesting debate on an IRC channel I'm on about whether or not Bitcoin is actually a currency. The pro side of the fence felt that as they could use it as a means of purchase it was good enough to be a currency. The anti-side felt that as it wasn't protected by law, it wasn't, and that it's volatility was more associated with a commodity such as gold.

What do you think? Is Bitcoin a currency, a commodity or neither?

[1] - http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/

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Money has several properties:

1) Medium of exchange. - Can be used to buy goods, thus avoiding barter

2) Store of value - Sell your crops today for money, knowing the money can be used in the future to buy fertilizer in the future

3) Unit of Account - Money must be divisible

4) Measure of Value - Can be used to understand the relative values of dissimilar things.

Given the high volatility of BitCoins, it is not currently useful as money. It is not a good store of value nor a good measure of value, and there are a limited number of things that can be bought with bitcoin.

Bitcoin is awesome as an anonymous wire service supported by bitbugs and speculators who are hoping it becomes a currency. Even if it is never useful as money, it may be valuable for a very long time.

2 and 4 will be solved by 1. Currently very very few places accept BitCoin as a form of payment and because of that the value is disconnected from everything but the commodities market (MtGox and other currency exchanges). Normal commodities have uses outside of stores of value, E.G. gold is useful both for aesthetic reasons (jewelry) as well as functional ones (good conductor), which help to add stability to their values on the commodities market. Because the current primary use of BitCoin is solely as a commodity to be traded, the "value" of BitCoin is massively subject to fluctuation, minor changes in investment by the commodities market lead to massive swings in value.

If BitCoin can survive long enough to see more widespread adoption of it as a currency that should go a long way towards helping to tamp down the swings in value we currently see occurring.

I'm doubtful about BitCoin becoming less volatile in the future. Perhaps in the very long term, but not within the next few years.

At the moment, merchants who accept bitcoin set prices natively in USD, and convert bitcoin to USD immediately (or risk currency losses). Bitcoin will become more stable once merchants set prices natively in BTC, regardless of the USD exchange rate. This is the case for example in Europe, where the EUR/USD fluctuations have little effect on the everyday purchasing power. This can realistically happen only once the majority of their expenses (salaries, suppliers, etc.) are also priced natively in BTC. But given that only USD is legal tender by law in the U.S., employees, suppliers and IRS can always refuse your bitcoin, and make the exchange rate an issue.

Another problem in at least the next few years is that a small group of early miners of Bitcoin hold the majority of the money supply. Until they have cashed out, they have the ability to flood the exchange with far more supply than there is demand from new users, making the long-term storage value risky.

> If BitCoin can survive long enough to see more widespread adoption of it as a currency

My question is why would it see widespread adoption? The only reasons I can think of are: it allows anonymous online transactions, has low transaction costs, is not backed by a government, and is interesting on a tech level. I am not sure these reasons are good enough to cause widespread adoption.

Low transaction costs translates directly into increased profit margin. Surely every business wants that?

Businesses want low transaction costs, but most business face competition and the customer decides the transaction medium. For instance, my company accepts paypal, not because I like it but rather my customers do.

Of course a company with monopoly power could force adoption. For instance Bitcoin would take off if your utility companies only accepted bitcoins, but I don't think that is likely.

Bitcoin is such a mix of different things that it doesn't easily fit into any of our existing boxes.

Which doesn't necessarily make it a bad thing. It just means that saying "Does it satisfy criteria X" doesn't help unless you're deliberately talking in metaphor.

In one way, it's like asking "Is the internet a series of tubes, or a superhighway?"

Totally agree with you here. These metaphorical boxes or mental frames help introduce us to the different uses, but often make analysis and debate very difficult. Worse, many aspects of bitcoin are inaccurately portrayed by even the most prominent economists in support of their various positions on the medium.

The real uses and pitfalls are emerging, indicating that this is a technology with huge potential. If you want to think of a special use, really dig in and get to know what makes bitcoin bitcoin.

I would suggest that it is both, as I don't think the two are mutually exclusive, and with the way commodity and currency exchanges operate the lines are definitely blurred.

As for your particular examples; commodities have always been used as a means of purchase whether by way of trade, barter or as a currency substitute (gold, silver, etc). The trade of commodities are protected by law. And currency volatility ranges with some currencies being highly stable and others hugely volatile, more so than most commodities.

So trying to bucket bitcoin like this doesn't seem to be worthwhile. I think the better discussion would be whether or not bitcoin should actually hold any value.

> I think the better discussion would be whether or not bitcoin should actually hold any value.

An interesting point. Do you think that it should hold any value?

At this point there is nothing to me that would suggest that it should. Obviously over time the idea of a true international currency would be beneficial. But something like bitcoin that was created by a random individual with no government support, no inherent or scarce value shouldn't be able to hold value.

To me it is irrational to put money behind bitcoin, it's a bubble like the Dutch Tulip Mania from the 1600's. No reason for it, and it won't last.

Neither. It's not a currency because you can't use it to buy products and services (other than drugs and socks). It's not a commodity because it's not a raw material or agricultural product.

I somewhat agree, I see bitcoins more in the vein of contracts that have market value, like futures and options. The value of these has value based on their underlying stocks and commodities, but that's as far as they go, value wise. Bitcoins, whose value are purely determined by their associated majority holder's currency (US Dollars) are very similar.

Yeah, Bitcoins can only be spent on drugs and socks. Totally, https://en.bitcoin.it/wiki/Trade

Just FYI, there are 1298 merchants on that page :)

It looks like most of those "accept Bitcoin" by using a service like Bitpay. In other words, they accept only fiat currencies but allow you to send them payments through another service that will exchange Bitcoin for some fiat currency.

You can trade sexual favors for all kinds of stuff, but it doesn't make it currency.

BitPay doesn't coun't. The merchants are all accepting whatever currency BitPay converts into.

I'll sell you my car for a sack of turds, assuming someone will exchange it for $15K and hand me the cash first.

Well, using Bitcoin as a means of transferring USD is a perfectly legitimate use. It even has lower fees than credit cards and Paypal these days, exchange fees included.

Commodity that can be used as a currency, same as gold.

In fact I'd say that's what bitcoin is, digital gold. Just as gold still remains an important holding for central banks, I have to wonder if at some point a second digital/crypto currency will be developed that somehow uses bitcoin as its stable base/commodity but which solves the issues that all the economists are whining about.

Gold has demand/supply based on industrial/ornamental value. But, what value does Bitcoin have?

Bitcoin provides for secure transmission and storage of value independent of a trusted 3rd party (and backed by the largest distributed super-computer in the world). Isn't that enough?

That explains it's currency nature. But, does it have any intrinsic value of a commodity like gold?

I think thats an interesting perspective. Just as gold is a finite quantity so will Bitcoin be a finite quantity when it reaches 21Mil coins.

I can imagine that in future Bitcoins can be used as a "reserve" currency that backs another currency

A major problem with BTC as a reserve currency is the way it is generated (mining) and reclaimed (fees). An entity with significant computational power would be able to maintain significant control over the reserve currency. It's feasible that early adopters, then, would be holding significant percentages of the reserve currency. What would motivate later adopters to convert when they have perfectly viable reserves already (gold, USD, etc) that's more equitably (well, from their perspective at least) distributed?

Second problem, it requires a major shift in the motivation of many adopters (anti-fiat, anti-fractional reserve banking).

Bitcoin is a protocol. There is nothing stopping the UN from creating their own currency using the Bitcoin protocol with all the characteristics they require of a reserve currency.

It's also a thing that is attempting to be a currency/commodity. I suppose in any discussion we should make clear which aspect we're talking about. I was talking about the currency/commodity aspect as that's what this entire thread was started on. For the protocol, I agree with you.

Gold is constantly mined, the amount increasing. It was acceptable as a currency-backer only because the amount mined tended to grow at the pace of the rest of the economy, although there were years when more or less was mined and this caused issues.

Bitcoin has these issued baked into the protocol.

Except gold has intrinsic value for various applications(though that value is much less than the market price).

You could also argue that physical currency also has intrinsic value for various applications too. Paper currency can be used as quasi-Post-It notes, kindling, etc. Coins can be melted down and used for manufacturing goods, etc.

So other than trade and accounting, what is Bitcoin useful for?

"but apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order... what have the Romans done for us?"

That's not the point. If Bitcoin has no uses other than trade and accounting, it is not a commodity.

"Commodity" and "Currency" are - before the law steps in - more or less arbitrary descriptions of human behaviors with extremely poorly-defined edges. Cigarettes are clearly a currency in jail, but they're a commodity pretty much everywhere else.

Once the law steps in - and it will - bitcoin is whatever the hell they say it is, in a court of law, which is the only place these definitions really matter. FINCEN has an opinion already, but that's just one part of one government. The consensus will take time to settle. For my money while mining is still possible, bitcoin is a commodity. After that it's something new, like a currency, but with a permanently inflexible monetary policy. That's never happened before, so what it will be, we just don't know.

http://arstechnica.com/tech-policy/2013/03/us-regulator-bitc...

It's a speculative commodity, which, if gaining enough traction and liquidity could provide a viable alternative for a currency.

I don't believe it is a commodity as it has no inherent use other than as a currency based on the value people are willing to give it. Gold (and almost anything with a physical presence) is obviously a commodity as it has a use (for making stuff) other than its value.

BitCoin only has a use because of a value associated with it and so it is a currency.

Gold's practical value is a small fraction of it's going price.

Bitcoin has some utility value in being a digital good that you can reliably exchange with someone, essentially instantly, over the internet, with no middle-man, for a very low cost.

Sure, this might seem like a trivial value, but I think it's value nonetheless, and overpricing of something like that is not unprecedented.

If Bitcoin's only utility is its ability to be transferred from one person to another, it is not a commodity.

But it has built-in scarcity which means it possesses a characteristic of a commodity. Maybe a bitcoin is currmodity?

That's not quite right.

The case I'm tempted to make is that Bitcoin is a commodity useful for secure, private/anonymous interactions. It's virtual sure, but the utility of a bitcoin is clear to its users and it is also inherent to its structure.

Thats exactly my point, BitCoins utility is only that of providing people with a way to make interactions where one exchanges BitCoin for something else. That is its ONLY practical utility and what it was designed for. It it had some other utility as well then it would be a commodity but as it does not it is only a currency.

Neither, it is just an experiment by cryptoanarchists to see if currency without any authority is even possible.

And to that end, even the snarkiest snarker should be able to agree that it's been fascinating watching it change as different persons, interests, and ideologies interact with it.

I just bought a song on http://www.coindl.com and was very, very impressed with how smoothly and quickly I was able to buy the song and download it without creating an account.

This proves to me that Bitcoin definitely could become a useful currency, but for this to happen it will have to become more stable. Until that happens, it will remain a highly speculative commodity with a neverending cycle of bubble and crash.

I think the really interesting topic is whether or not a currency can work without being at least slightly inflationary. At a specific point, all the bitcoins will be mined so people will be/are incentivized to hold on to bitcoins instead of spending them.

Also, there are two general groups of commodities: renewable and nonrenewable. To be specific, we're talking about a nonrenewable commodity here.

Right now I would say it is a commodity. I think the majority of people getting into bitcoin right now are doing it either for emotional reasons or because they have enough disposable income to play with it. I don't think I could convince my mom or dad to start using bitcoin, or even just a stranger on the street. It's still just a novelty for nerds.

Bitcoin is a service for making anonymous transfers of fiat currencies, typically US dollars, for goods and services. It's ideal for purchasing illegal or controlled substances.

Recently, it has also become a popular mechanism to make small, relatively volatile speculative transactions for financial gain.

There is a disconnect between what people commonly think a currency is and what laws state a currency is. Regardless of what people feel like Bitcoin should be classified as, it will never be classified as a currency in the eyes of the law written around foreign exchange until it is legal tender in a recognized nation. If that ever happens, then the entire existing body of laws written over decades revolving around the FX market will formally apply.

Being protected by law doesn't help it any - many currencies have failed despite such protections. The volatility is the real issue; as long as the value fluctuates wildly, it won't be useful as currency (and vice versa!).

If it becomes more widely accepted to purchase tangible goods and services, do you think the value will continue to swing wildly?

In some aspects, I would think that would moderate the pricing, since at the moment it's not good for that much else for most people other than speculation and cashing in/out as needed.

Yes - but only if the merchants set fixed prices in bitcoin, rather than "$20 USD, transferred via bitcoin". Which they won't be able to do until their suppliers, employees and taxes can be paid in fixed number of bitcoins.

More merchants via instant-USD-conversion will certainly increase the popularity of bitcoin, but won't help at all in giving it a moderate value in tangible goods and services.

The name Bit'coin' suggests it is a currency. But it trades like a commodity, even though it doesn't fall under "goods" that satisfy wants/needs. Bloody confusing for me!

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